Can China's Companies Conquer the World?

The Overlooked Importance of Corporate Power

About the Author:

My FA Anthologies

PANKAJ GHEMAWAT is Global Professor of Management and Strategy at New York University’s Stern School of Business and Anselmo Rubiralta Chair of Strategy and Globalization at the University of Navarra’s IESE Business School. Follow him on Twitter @PankajGhemawat. THOMAS HOUT teaches strategy at the Middlebury Institute of International Studies at Monterey, the Fletcher School of Law and Diplomacy at Tufts University, and the University of Hong Kong’s School of Business.

Despite China’s recent economic struggles, many economists and analysts argue that the country remains on course to overtake the United States and become the world’s leading economic power someday soon. Indeed, this has become a mainstream view—if not quite a consensus belief—on both sides of the Pacific. But proponents of this position often neglect to take into account an important truth: economic power is closely related to business power, an area in which China still lags far behind the United States.

To understand how that might affect China’s future prospects, it’s important to first grasp the reasons why many remain bullish on China—to review the evidence that supports the case for future Chinese dominance. At first glance, the numbers are impressive. China’s GDP is likely to surpass that of the United States—although probably not until at least 2028, which is five to ten years later than most analysts were predicting before China’s current slowdown began in 2014. After all, China is already the world’s largest market for hundreds of products, from cars to power stations to diapers. The Chinese government has over $3 trillion in foreign exchange reserves, which is easily the world’s largest such holding. And China overshadows the United States in trade volume: of the 180 nations with which the two countries both trade, China is the larger trading partner with 124, including some important U.S. political and military allies. Finally, China has made steady progress toward its goal of becoming the investor, infrastructure builder, equipment supplier, and banker of choice in the developing world. Much of Asia, Africa, and Latin America now depends on China economically and politically.

Since Chinese share prices tumbled last summer and then again earlier this year, investors have grown wary of the country’s stock market. But that market has been largely irrelevant to China’s economic growth: from 1990 to 2013, as Chinese GDP grew at roughly ten percent annually, the stock market barely moved. Its